KENNEDY: Another reason single-payer makes sense

April 1, 2017

Sheila Suess KennedyThe fight over the GOP’s health care bill was the latest iteration of a recurring debate between free market true believers and people who understand that market exchanges require a willing buyer and willing seller, both of whom possess all information relevant to the transaction.

For rather obvious reasons, that doesn’t describe health care.

Proponents of single-payer systems routinely point out that countries having such systems pay less for better health outcomes but seldom explain how our system disadvantages American business.

The largest single drag on job creation and entrepreneurial activity in the U.S. is the cost of providing insurance. The business sector spends an amount in excess of its net profits on employee health insurance.

The difference between the cost of creating a position and the amount the employee actually receives is called the employment “wedge.” When health costs and insurance premiums escalate, the wedge grows larger and inhibits hiring additional workers. (It also encourages automation.)

It isn’t simply premiums. Negotiating and administering medical benefits—and complying with accompanying government regulations—consumes untold hours of human-resources time. That is a generator of overhead costs that reduces profits and diverts effort away from core business operations. A single-payer system would remove those costs and that administrative burden.

It would also boost American competitiveness. The auto industry is an instructive example: Amounts paid by automakers for employee health care add somewhere between $1,800 and $2,000 to the price of each new car. When domestic manufacturers compete with automakers in single-payer systems, they are competing with manufacturers who don’t need to factor those costs into their prices.

America’s hybrid system, neither market-based nor government-provided, also adds significantly to the costs of care. American medical offices spend considerable sums on personnel whose only job is dealing with insurers—confirming coverage, complying with insurer regulations, submitting claims on multiple forms, and collecting amounts due. (Doctors and employers alike could save millions of dollars each year just by standardizing insurance forms.) In single-payer systems, that isn’t a cost of doing business.

Meanwhile, smaller companies—the engines of economic growth and job creation, the “entrepreneurs” about whom the Freedom Caucus is purportedly worried—are increasingly unable to offer benefits, which puts them at a competitive disadvantage as they try to hire good employees. 

If health coverage were de-coupled from employment, the United States would become a much more attractive location for new businesses, and incentives to outsource production to overseas workers would be reduced. A case in point: A few years ago, Toyota was looking for a site for a new factory in North America. Several Southern states were competing for that factory; they were each offering tax abatements, infrastructure improvements and other incentives worth millions. Toyota ultimately decided to go to Canada, which was not offering incentives.

When asked to explain its reasoning, the company said in Canada, Toyota would not need to provide employees with health care.

Over the past quarter-century, countries like China have had to recognize the value of markets and the drawbacks of government interventions in areas of the economy better served by private competition. At some point, American lawmakers will have to recognize that there are some goods markets cannot supply efficiently or fairly—and that failure to distinguish between areas where markets work and areas where they don’t distorts the whole economy, including markets, to the detriment of American business competitiveness.•


Kennedy is a professor of law and public policy at the School of Public and Environmental Affairs at IUPUI. She can be reached at skennedy@ibj.com.


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